Common credit card fees and how to avoid them

By Emma Lunn

Using credit doesn't have to cost you.
Although all cards will have some sort of costs and fees attached, most are
avoidable, assuming you pick the right card and use it correctly.

You'll find your card's fees within your
cardholder agreement.

"As with any form of credit, it is
crucial that consumers be fully aware of the potential charges they may face, says
Edward Ware, spokesman for debt charity StepChange.
"This means familiarising themselves with the terms and conditions,"

Here are some common fees your card
might charge you -- and some strategies for avoiding them.

Interest
chargesInterest is charged on the money you
borrow on a credit card. Different rates of interest may be charged for
different types of transactions. For example, the card will have a purchase
rate for normal purchases and another rate for cash advances.

How to avoid it:The best way to avoid
interest is to pay your entire balance on time. Credit cards normally come with
an interest-free grace period of between 45 and 59 days. If you pay your balance
in this time period, you won't be charged any interest at all. Cash advances,
however, do not have grace periods, and the interest clock starts ticking right
away. So it's best to avoid cash advances altogether.

Already buried in interest charges? You
can freeze new ones for as long as two years by moving your debt to a balance
transfer card with a 0 per cent introductory offer (although you will pay a balance transfer fee of around 3 per cent to do so).

Late
payment feeYour card will require you to make a
minimum repayment each month, normally a percentage of the outstanding amount of
the balance. If you don't make at least this payment on time, you'll be charged
a late
payment fee, normally £12.

How
to avoid it: Avoiding late payment fees is
simple: Pay on time. You can set up a direct debit from your bank account to
pay the minimum, a set amount or the whole bill each month.

Over-limit
fee
When you take out a credit card, you'll be set a credit
limit, the highest outstanding balance you can have on the card. If you
spend more than this on the card, you'll be charged a fee for exceeding your
limit -- usually up to £12 per occurrence.

How
to avoid it: Keep a check on your spending. Look
at your statement each month and stop spending on the card if your next
purchase will take you over your limit. If you find yourself constantly nearing
your limit month after month, contact your credit card provider to request a
credit limit increase. However, there's no guarantee your request will be
honoured.

Annual
feeSome credit cards charge an annual fee.
These cards tend to be at the premium end of the market, and you'll get certain
perks in return for the fee.

How
to avoid it: The majority of credit cards don't
charge an annual fee so it's pretty easy to pick a card without this charge. Even
if you want rewards, there are some fee-free
travel rewards cards on the market.

Cash
advance feeShort on cash? If you use your credit
card to take cash out of an ATM you'll be charged a fee for this. You're also
likely to be charged a higher interest rate on this type of transaction.

How
to avoidit:
Use cash advances only in an emergency. If you need cash, use your debit card
instead.

Be aware that there are certain transactions
often treated as "cash withdrawals " by credit card companies. These include
transactions on gambling websites and buying foreign currency.

Foreign
usage fee
If you use your card abroad, you're likely to be charged extra for the
privilege. Most card providers charge a foreign loading charge on both ATM
withdrawals and purchases.

How
to avoid it: Although they're rare, some cards
don't charge for transactions abroad. Credit cards that fall into this category
include Halifax's Clarity MasterCard, the Saga Platinum card (available for
consumers over age 50) and the Post Office Credit Card.

Whichever fees you're trying to avoid,
side-stepping them is only part of the credit picture. If you carry large
amounts of debt, damaged credit will likely end up costing you more than any
fee.

"Most importantly consumers must also be
absolutely certain that they can repay the money they borrow," Ware says. "Spending
on credit and failing to repay can quickly escalate and lead into problem
debt."